Rising mortgage rates are scaring away first-time homebuyers looking to purchase in spring 2017, according to data released by Realtor.com.
Data collected by Realtor.com suggests the share of first-time buyers planning to buy in the new year declined sharply after mortgage rates began to rise last year, falling as much as 10 percent since October 2016. Record low inventory levels, higher prices and heavy buyer competition are compounding the issue, creating more urgency for those in the market.
Jonathan Smoke, Chief Economist for Realtor.com, said the data outlines a climate in which homebuyers are reluctant to make a purchase when both costs and interest rates are rising.
"Last fall, we saw a large jump in the number of first timers planning home purchases, which was very encouraging because their market share is still well below pre-recession levels," he said. “But, as evidenced by their decline in share, first-time buyers are really dependent on financing and affordability is one of their largest barriers to home ownership. This number could continue to decline with anticipated increases in interest rates and home prices.”
According to the site’s survey, 44 percent of buyers planning to buy in spring 2017 are first-time homebuyers. This represents a significant drop since October, when a survey then indicated 55 percent of buyers of planning a spring purchase indicated they were looking for their first home.
The survey also revealed first-time buyers were nearly five times more likely than repeat buyers to say they faced challenges qualifying for a mortgage, with affordability ranking highly among first-time buyer concerns.
Smoke said interest rates rise with the anticipation of stronger economic and wage growth, both of which benefit homebuyers. However, those rising interest rates can also make qualifying for a mortgage and finding affordable inventory more challenging.
“The decline in the share of first-time buyers since October suggests that the move up in rates is discouraging new homebuyers already,” Smoke said.
The rising interest rates may have a chilling effect on new buyers, but repeat homebuyers are taking advantage. Despite recent increases interest rates are still at historic lows, and realtor.com data shows increased demand with experienced buyers trying to close before rates climb any further.
Homebuyers have a number of obstacles in the market going forward into 2017, including the smallest inventory of homes for sale since the beginning of the recession, record-high home prices and rising home demand.